Highlights

  • Metcash shares gained 9.12% to AUD 2.99 during morning trading on May 11, 2026, despite the stock having declined 24.30% over the previous six months, following a trading update confirming FY26 Underlying Profit After Tax of $268 million to $270 million.
  • Group Revenue grew 0.7% for the full year, or 3.8% excluding tobacco, with improved second-half momentum in Hardware and Tools providing an encouraging signal for the Business's largest Earnings contributor alongside Food.
  • Metcash announced an incremental cost program targeting at least $25 million in annualised savings in FY27, including approximately $15 million in labour savings and $10 million in non-trade procurement savings, with a restructuring charge of approximately $6 million expected in FY27.

 

Metcash Limited (ASX:MTS), Australia's leading wholesale distribution and Marketing group, saw its shares rally 9.12% to AUD 2.99 during morning trading on May 11, 2026. The move came after the company issued a preliminary trading update for the year ended April 30, 2026, providing the market with its first look at full-year earnings. The rally occurred despite the stock having lost 24.30% of its value over the previous six months, a period characterised by concerns around trade market softness in hardware, tobacco regulatory disruption, and the broader macroeconomic headwinds facing Australian consumers.

The update reflected a business that, while navigating genuine structural and cyclical challenges across its three operating segments, has maintained disciplined execution on cost management, Working Capital, and cash generation. CEO Doug Jones described the result as 'solid,' attributing the performance to the resilience of the Food and Liquor businesses, the Diversification of the group portfolio, and continued operational discipline. The preliminary nature of the announcement was explicitly noted, with full results scheduled for release on June 22, 2026.

Financial Summary: Underlying NPAT $268m–$270m

Metcash expects to deliver Underlying Profit After Tax of between $268 million and $270 million for FY26, representing the group's headline earnings metric. Group revenue of approximately $19.6 billion grew 0.7% on a reported basis and 3.8% excluding tobacco, with the tobacco exclusion relevant because declining illicit tobacco volumes and mitigation initiatives have created significant year-on-year distortions in reported top-line comparisons. Group EBIT is expected to be between $501 million and $505 million, inclusive of approximately $12 million in integration and strategy costs.

Cash performance was highlighted as a significant positive in the update. Cash realisation is expected to exceed the company's own three-year target range of 80% to 90%, driven by effective cost and working capital discipline. The Debt Leverage Ratio is expected to land at the low end of the 1.0 to 1.75 times target range, providing Balance Sheet flexibility for the period ahead. Capital Expenditure, excluding mergers and acquisitions, came in at approximately $170 million, approximately $30 million below guidance, reflecting active management of discretionary project spending.

Food: Supermarkets Hold Firm, Foodservice Delivers

The Food division generated revenue of approximately $10.5 billion for FY26. Excluding tobacco, Food revenue grew 5.4% on a reported basis, with the underlying momentum attributable to both IGA-aligned supermarkets and the Foodservice and Convenience channel. Supermarkets remained competitive through promotional programs including the Extra Specials initiative, which has become a key tool for driving customer traffic to independently operated IGA stores. Tobacco sales trends improved in the second half of the year following a combination of mitigation initiatives put in place by Metcash and increased enforcement activity by regulators against illicit tobacco, a category that had been competing illegally with licensed product.

The Foodservice and Convenience segment delivered strong growth, driven by customer additions and contract wins that have expanded Metcash's reach beyond its traditional retail grocery base. Food EBIT is expected to be between $259 million and $262 million, inclusive of approximately $4 million in integration and strategy costs. The ongoing improvement in tobacco mix has also supported Margin improvement in the Food segment, as tobacco historically carries lower margins than ambient grocery products.

Liquor: Recovery in On-Premise Drives a Strong Second Half

The Liquor division, which operates through the Independent Brands Australia network including Cellarbrations, The Bottle-O, and IGA Liquor, generated revenue of approximately $5.4 billion, up 1.0%. Australian sales to retail and contract customers grew 0.6%, while wholesale sales to on-premise customers such as hotels and restaurants grew 6.4%, reflecting the ongoing recovery in hospitality spending that accelerated through the second half. EBIT for the Liquor division is expected to be between $98 million and $101 million, inclusive of approximately $1 million in strategy costs. Notably, the EBIT margin recovered to long-term levels in the second half of FY26, which had been a concern for investors during the first half when margin pressure was more visible.

Hardware and Tools: Soft Trade Market, Better Second Half

The Hardware and Tools division, which includes the Total Tools Franchise and the IHG Hardware wholesale business supplying independent hardware retailers, generated revenue of approximately $3.7 billion, up 4.3%. Total Tools grew 6.7%, continuing its track record of outperformance in the franchise channel. The broader Hardware segment grew 3.7%, driven in part by the inclusion of Superior Foods for a full 52 weeks versus 47 weeks in FY25. EBIT is expected to be between $175 million and $179 million, inclusive of approximately $7 million in integration and strategy costs.

The residential building market remained soft throughout FY26, with the timing of recovery extended relative to earlier expectations. Margin pressure was particularly evident in Victoria and Tasmania, where market conditions were most challenging. Encouragingly, sales momentum improved in the second half, reflecting pricing and ranging initiatives taken earlier in the year. Management expressed confidence that the division is well-placed for an anticipated cyclical improvement in residential building activity, supported by long-term structural housing Demand in Australia.

Cost Discipline and Forward Savings Program

Metcash announced an incremental cost savings program targeting at least $25 million in annualised savings in FY27, to be achieved through approximately $15 million in labour savings concentrated primarily in Hardware and Tools and approximately $10 million in non-trade procurement savings. A restructuring charge of approximately $6 million is expected in FY27, with a payback period of within twelve months. These initiatives build on prior cost reduction programs and are intended to align the cost base with prevailing market conditions while retaining operational leverage for the cyclical upturn in hardware construction activity. Management flagged that the Middle East conflict has not materially impacted FY26 earnings, with freight and product cost increases largely offset through pricing mechanisms and active Supply chain management.

Conclusion

Metcash's FY26 preliminary update reflects a group that has managed through a genuinely difficult operating environment without compromising its financial discipline or market position. The combination of resilient Food and Liquor earnings, improved Hardware momentum in the second half, strong cash generation, and a new cost savings program provided the market with enough positive catalysts to justify the morning session rally. The 24.30% six-month decline that preceded the announcement had already priced in considerable pessimism, and the update demonstrated that the underlying businesses, while not immune to external pressures, are more resilient than the share price had implied.